NABE Outlook: Recession End in Sight, but Subpar Recovery to Follow
June 2009
SUMMARY: “While the overall tone remains soft, there are emerging signs that the economy is stabilizing,” according to NABE’s latest survey and its president, Chris Varvares, who is also president of Macroeconomic Advisers. “The survey found that business economists look for the recession to end soon, but that the economic recovery is likely to be considerably more moderate than those typically experienced following steep declines. Moreover, despite encouraging signs seen in the last several weeks, the NABE panel downgraded the economic outlook for the next several quarters, compared with the previous survey,” he added. According to the survey, the key downside risks remain continued large job losses, no improvement in credit conditions, and further sharp declines in home values. These same forces are causing consumers to remain cautious, a feature that NABE panelists think is here to stay. Following a sharp 6.1% (annual rate) contraction in the first quarter of this year and another 1.8% drop in the second quarter, NABE forecasters expect real GDP to rise at a subpar 1.2% rate in the second half. This would result in a hefty 1.2% decline in 2009 (on a fourth-quarter over fourth-quarter basis), on the heels of a 0.8% decline in 2008. The unemployment rate is forecast to rise to 9.8% by year-end; and inflation is expected to moderate, as economic slack builds and as oil prices are forecast to remain relatively depressed. “The good news is that the NABE panel expects economic growth to turn positive in the second half of this year, with the pace of job losses narrowing sharply over the remainder of this year and employment turning up in early 2010,” Mr. Varvares said.
Highlights
- The NABE forecast panel expects a further decline in economic activity during the second quarter, making for the most severe economic contraction in over half a century.
- The near-term weakness is largely due to a sharp retrenchment in business investment.
- Rising government spending will provide vital support to the economy, as the only major expenditure area posting positive growth in 2009.
- A modest second-half rebound in real GDP is still expected.
- Growth in 2010 is slated for a return to near its historical trend, with real GDP rising 2.7% on a fourthquarter- to-fourth quarter basis.
- Labor productivity remains impressive and is expected to improve.
The full survey is for NABE Members only- who can view the full survey here.
Not a NABE member? Find out more about NABE.